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Level 1 | Inputs based upon quoted prices in active markets for identical assets. |
Level 2 | Inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly. |
Level 3 | Inputs that are unobservable for the asset. |
2010 | 2009 | ||||||
Accounts and notes receivable | $ | 289 | $ | 274 | |||
Allowance for doubtful accounts | (33) | (35) | |||||
Accounts and notes receivable, net | $ | 256 | $ | 239 | |||
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2010 | 2009 | 2008 | |||||||||||
Net Income – YUM! Brands, Inc. | $ | 1,158 | $ | 1,071 | $ | 964 | |||||||
Weighted-average common shares outstanding (for basic calculation) | 474 | 471 | 475 | ||||||||||
Effect of dilutive share-based employee compensation | 12 | 12 | 16 | ||||||||||
Weighted-average common and dilutive potential common shares outstanding (for diluted calculation) | 486 | 483 | 491 | ||||||||||
Basic EPS | $ | 2.44 | $ | 2.28 | $ | 2.03 | |||||||
Diluted EPS | $ | 2.38 | $ | 2.22 | $ | 1.96 | |||||||
Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation(a) | 2.2 | 13.3 | 5.9 | ||||||||||
(a) | These unexercised employee stock options and stock appreciation rights were not included in the computation of diluted EPS because to do so would have been antidilutive for the periods presented. |
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Acquisition of Interest in Little Sheep |
Sale of Our Interest in Our Japan Unconsolidated Affiliate |
2010 | |||||||||||||||||||
China Division | YRI | U.S. | Worldwide | ||||||||||||||||
Refranchising (gain) loss(a) (b) (c) | $ | (8 | ) | $ | 53 | $ | 18 | $ | 63 | ||||||||||
Store closure (income) costs(d) | $ | — | $ | 2 | $ | 3 | $ | 5 | |||||||||||
Store impairment charges | 16 | 12 | 14 | 42 | |||||||||||||||
Closure and impairment (income) expenses | $ | 16 | $ | 14 | $ | 17 | $ | 47 | |||||||||||
2009 | |||||||||||||||||||
China Division | YRI | U.S. | Worldwide | ||||||||||||||||
Refranchising (gain) loss(a) (c) | $ | (3 | ) | $ | 11 | $ | (34 | ) | $ | (26 | ) | ||||||||
Store closure (income) costs(d) | $ | (4 | ) | $ | — | $ | 13 | $ | 9 | ||||||||||
Store impairment charges(e) | 13 | 22 | 33 | 68 | |||||||||||||||
Closure and impairment (income) expenses(f) | $ | 9 | $ | 22 | $ | 46 | $ | 77 | |||||||||||
2008 | |||||||||||||||||||
China Division | YRI | U.S. | Worldwide | ||||||||||||||||
Refranchising (gain) loss(a) | $ | (1 | ) | $ | (9 | ) | $ | 5 | $ | (5 | ) | ||||||||
Store closure (income) costs(d) | $ | (3 | ) | $ | (5 | ) | $ | (4 | ) | $ | (12 | ) | |||||||
Store impairment charges | 7 | 14 | 34 | 55 | |||||||||||||||
Closure and impairment (income) expenses | $ | 4 | $ | 9 | $ | 30 | $ | 43 | |||||||||||
(a) | Refranchising (gain) loss is not allocated to segments for performance reporting purposes. |
(b) | U.S. refranchising loss for the year ended December 25, 2010 is the net result of gains from 404 restaurants sold and non-cash impairment charges related to our offers to refranchise KFCs in the U.S. While we did not yet believe these KFCs met the criteria to be classified as held for sale, we did, consistent with our historical practice, review the restaurants for impairment as a result of our offer to refranchise. We recorded impairment charges where we determined that the carrying value of restaurant groups to be sold was not recoverable based upon our estimate of expected refranchising proceeds and holding period cash flows anticipated while we continue to operate the restaurants as company units. For those restaurant groups deemed impaired, we wrote such restaurant groups down to our estimate of their fair values, which were based on the sales price we would expect to receive from a franchisee for each restaurant group. This fair value determination considered current market conditions, real-estate values, trends in the KFC-U.S. business, prices for similar transactions in the restaurant industry and preliminary offers for the restaurant group to date. We continued to depreciate the pre-impairment charges carrying value of these restaurants for periods prior to impairment being recorded and continued to depreciate the post-impairment charges carrying value thereafter. We will continue to depreciate the post-impairment charges carrying value going forward until the date we believe the held for sale criteria for any restaurants are met. Additionally, we will continue to review the restaurant groups for any further necessary impairment. The aforementioned non-cash write downs totaling $85 million do not include any allocation of the KFC reporting unit goodwill in the restaurant group carrying value. This additional non-cash write down would be recorded, consistent with our historical policy, if the restaurant groups, or any subset of the restaurant groups, ultimately meet the criteria to be classified as held for sale. We will also be required to record a charge for the fair value of our guarantee of future lease payments for leases we assign to the franchisee upon any sale. |
(c) | In the fourth quarter of 2010 we recorded a $52 million loss on the refranchising of our Mexico equity market as we sold all of our company owned restaurants, comprised of 222 KFCs and 123 Pizza Huts, to an existing Latin American franchise partner. The buyer will also serve as the master franchisee for Mexico which had 102 KFCs and 53 Pizza Hut franchise restaurants at the time of the transaction. The write off of goodwill included in this loss was minimal as our Mexico reporting unit includes an insignificant amount of goodwill. This loss did not result in any related income tax benefit and was not allocated to any segment for performance reporting purposes. During the year ended December 26, 2009 we recognized a non-cash $10 million refranchising loss as a result of our decision to offer to refranchise our KFC Taiwan equity market. During the year ended December 25, 2010 we refranchised all of our remaining company restaurants in Taiwan, which consisted of 124 KFCs. We included in our December 25, 2010 financial statements a non-cash write-off of $7 million of goodwill in determining the loss on refranchising of Taiwan. Neither of these losses resulted in a related income tax benefit, and neither loss was allocated to any segment for performance reporting purposes. The amount of goodwill write-off was based on the relative fair values of the Taiwan business disposed of and the portion of the business that was retained. The fair value of the business disposed of was determined by reference to the discounted value of the future cash flows expected to be generated by the restaurants and retained by the franchisee, which include a deduction for the anticipated royalties the franchisee will pay the Company associated with the franchise agreement entered into in connection with this refranchising transaction. The fair value of the Taiwan business retained consists of expected, net cash flows to be derived from royalties from franchisees, including the royalties associated with the franchise agreement entered into in connection with this refranchising transaction. We believe the terms of the franchise agreement entered into in connection with the Taiwan refranchising are substantially consistent with market. The remaining carrying value of goodwill related to our Taiwan business of $30 million, after the aforementioned write-off, was determined not to be impaired as the fair value of the Taiwan reporting unit exceeded its carrying amount. | |
(d) | Store closure (income) costs include the net gain or loss on sales of real estate on which we formerly operated a Company restaurant that was closed, lease reserves established when we cease using a property under an operating lease and subsequent adjustments to those reserves and other facility-related expenses from previously closed stores. | |
(e) | The 2009 store impairment charges for YRI include $12 million of goodwill impairment for our Pizza Hut South Korea market. See Note 9. | |
(f) | In 2009, an additional $26 million of goodwill impairment related to our LJS and A&W-U.S. businesses was not allocated to segments for performance reporting purposes and is not included in this table. See Note 9. | |
Beginning Balance | Amounts Used | New Decisions | Estimate/Decision Changes | CTA/ Other | Ending Balance | ||||||||||||||||||||||
2010 Activity | $ | 27 | (12 | ) | 8 | — | 5 | $ | 28 | ||||||||||||||||||
2009 Activity | $ | 27 | (12 | ) | 10 | 4 | (2 | ) | $ | 27 | |||||||||||||||||
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2010 | 2009 | 2008 | ||||||||||||
Cash Paid For: | ||||||||||||||
Interest | $ | 190 | $ | 209 | $ | 248 | ||||||||
Income taxes | 357 | 308 | 260 | |||||||||||
Significant Non-Cash Investing and Financing Activities: | ||||||||||||||
Capital lease obligations incurred to acquire assets | $ | 16 | $ | 7 | $ | 24 | ||||||||
Net investment in direct financing leases | 2 | 8 | 26 | |||||||||||
Increase (decrease) in accrued capital expenditures | 51 | (17 | ) | 12 | ||||||||||
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|||
2010 | 2009 | 2008 | ||||||||||||
Initial fees, including renewal fees | $ | 54 | $ | 57 | $ | 61 | ||||||||
Initial franchise fees included in refranchising gains | (15 | ) | (17 | ) | (20 | ) | ||||||||
39 | 40 | 41 | ||||||||||||
Continuing fees and rental income | 1,521 | 1,383 | 1,420 | |||||||||||
$ | 1,560 | $ | 1,423 | $ | 1,461 | |||||||||
|
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2010 | 2009 | 2008 | |||||||||||
Equity income from investments in unconsolidated affiliates | $ | (42 | ) | $ | (36 | ) | $ | (41 | ) | ||||
Gain upon consolidation of a former unconsolidated affiliate in China(a) | — | (68 | ) | — | |||||||||
Gain upon sale of investment in unconsolidated affiliate(b) | — | — | (100 | ) | |||||||||
Foreign exchange net (gain) loss and other | (1 | ) | — | (16 | ) | ||||||||
Other (income) expense | $ | (43 | ) | $ | (104 | ) | $ | (157 | ) | ||||
(a) | See Note 4 for further discussion of the consolidation of a former unconsolidated affiliate in Shanghai, China. |
(b) | Fiscal year 2008 reflects the gain recognized on the sale of our interest in our unconsolidated affiliate in Japan. See Note 4. |
|
|||
Prepaid Expenses and Other Current Assets | 2010 | 2009 | ||||||||
Income tax receivable | $ | 115 | $ | 158 | ||||||
Other prepaid expenses and current assets | 154 | 156 | ||||||||
$ | 269 | $ | 314 | |||||||
Property, Plant and Equipment | 2010 | 2009 | ||||||||
Land | $ | 542 | $ | 538 | ||||||
Buildings and improvements | 3,709 | 3,800 | ||||||||
Capital leases, primarily buildings | 274 | 282 | ||||||||
Machinery and equipment | 2,578 | 2,627 | ||||||||
Property, Plant and equipment, gross | 7,103 | 7,247 | ||||||||
Accumulated depreciation and amortization | (3,273 | ) | (3,348 | ) | ||||||
Property, Plant and equipment, net | $ | 3,830 | $ | 3,899 | ||||||
Accounts Payable and Other Current Liabilities | 2010 | 2009 | ||||||||
Accounts payable | $ | 540 | $ | 499 | ||||||
Accrued capital expenditures | 174 | 123 | ||||||||
Accrued compensation and benefits | 357 | 342 | ||||||||
Dividends payable | 118 | 98 | ||||||||
Accrued taxes, other than income taxes | 95 | 100 | ||||||||
Other current liabilities | 318 | 251 | ||||||||
$ | 1,602 | $ | 1,413 | |||||||
|
|||
China Division | YRI | U.S. | Worldwide | ||||||||||||||||
Balance as of December 27, 2008 | |||||||||||||||||||
Goodwill, gross | $ | 30 | $ | 224 | $ | 356 | $ | 610 | |||||||||||
Accumulated impairment losses | — | (5 | ) | — | (5 | ) | |||||||||||||
Goodwill, net | 30 | 219 | 356 | 605 | |||||||||||||||
Acquisitions | 52 | — | 1 | 54 | |||||||||||||||
Impairment losses(a) (b) | — | (12 | ) | (26 | ) | (38 | ) | ||||||||||||
Disposals and other, net(c) | — | 25 | (5 | ) | 19 | ||||||||||||||
Balance as of December 26, 2009 | |||||||||||||||||||
Goodwill, gross | 82 | 249 | 352 | 683 | |||||||||||||||
Accumulated impairment losses | — | (17 | ) | (26 | ) | (43 | ) | ||||||||||||
Goodwill, net | 82 | 232 | 326 | 640 | |||||||||||||||
Acquisitions(d) | — | 37 | — | 37 | |||||||||||||||
Disposals and other, net(c) | 3 | (17 | ) | (4 | ) | (18 | ) | ||||||||||||
Balance as of December 25, 2010 | |||||||||||||||||||
Goodwill, gross | 85 | 269 | 348 | 702 | |||||||||||||||
Accumulated impairment losses | — | (17 | ) | (26 | ) | (43 | ) | ||||||||||||
Goodwill, net | $ | 85 | $ | 252 | $ | 322 | $ | 659 | |||||||||||
(a) | We recorded a non-cash goodwill impairment charge of $26 million, which resulted in no related tax benefit, associated with our LJS and A&W-U.S. reporting unit in the fourth quarter of 2009 as the carrying value of this reporting unit exceeded its fair value. The fair value of the reporting unit was based on our discounted expected after-tax cash flows from the future royalty stream, net of G&A, expected to be earned from the underlying franchise agreements. These cash flows incorporated the decline in future profit expectations for our LJS and A&W-U.S. reporting unit which were due in part to the impact of a reduced emphasis on multi-branding as a U.S. growth strategy. This charge was recorded in Closure and impairment (income) expenses in our Consolidated Statement of Income and was not allocated to the U.S. segment for performance reporting purposes. See Note 4. |
(b) | We recorded a non-cash goodwill impairment charge of $12 million for our Pizza Hut South Korea reporting unit in the fourth quarter of 2009 as the carrying value of this reporting unit exceeded its fair value. The fair value of this reporting unit was based on the discounted expected after-tax cash flows from company operations and franchise royalties for the business. Our expectations of future cash flows were negatively impacted by recent profit declines the business has experienced. This charge was recorded in Closure and impairment (income) expenses in our Consolidated Statement of Income and was allocated to our International segment for performance reporting purposes. |
(c) | Disposals and other, net includes the impact of foreign currency translation on existing balances and goodwill write-offs associated with refranchising. |
(d) | We recorded goodwill in our International segment related to the July 1, 2010 exercise of our option with our Russian partner to purchase their interest in the co-branded Rostik’s-KFC restaurants across Russia and the Commonwealth of Independent States. See Note 4. |
2010 | 2009 | ||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||||||
Definite-lived intangible assets | |||||||||||||||||||
Franchise contract rights | $ | 163 | $ | (83 | ) | $ | 153 | $ | (78 | ) | |||||||||
Trademarks/brands | 234 | (57 | ) | 225 | (48 | ) | |||||||||||||
Lease tenancy rights | 56 | (12 | ) | 66 | (24 | ) | |||||||||||||
Favorable operating leases | 27 | (10 | ) | 27 | (8 | ) | |||||||||||||
Reacquired franchise rights | 143 | (20 | ) | 121 | (8 | ) | |||||||||||||
Other | 5 | (2 | ) | 7 | (2 | ) | |||||||||||||
$ | 628 | $ | (184 | ) | $ | 599 | $ | (168 | ) | ||||||||||
Indefinite-lived intangible assets | |||||||||||||||||||
Trademarks/brands | $ | 31 | $ | 31 | |||||||||||||||
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2010 | 2009 | ||||||||
Short-term Borrowings | |||||||||
Current maturities of long-term debt | $ | 673 | $ | 56 | |||||
Other | — | 3 | |||||||
$ | 673 | $ | 59 | ||||||
Long-term Debt | |||||||||
Unsecured International Revolving Credit Facility, expires November 2012 | $ | — | $ | — | |||||
Unsecured Revolving Credit Facility, expires November 2012 | — | 5 | |||||||
Senior Unsecured Notes | 3,257 | 2,906 | |||||||
Capital lease obligations (See Note 11) | 236 | 249 | |||||||
Other, due through 2019 (11%) | 64 | 67 | |||||||
3,557 | 3,227 | ||||||||
Less current maturities of long-term debt | (673 | ) | (56 | ) | |||||
Long-term debt excluding hedge accounting adjustment | 2,884 | 3,171 | |||||||
Derivative instrument hedge accounting adjustment (See Note 12) | 31 | 36 | |||||||
Long-term debt including hedge accounting adjustment | $ | 2,915 | $ | 3,207 |
Interest Rate | |||||||||
Issuance Date(a) | Maturity Date | Principal Amount (in millions) | Stated | Effective(b) | |||||
April 2001 | April 2011 | $ | 650 | 8.88% | 9.20% | ||||
June 2002 | July 2012 | $ | 263 | 7.70% | 8.04% | ||||
April 2006 | April 2016 | $ | 300 | 6.25% | 6.03% | ||||
October 2007 | March 2018 | $ | 600 | 6.25% | 6.38% | ||||
October 2007 | November 2037 | $ | 600 | 6.88% | 7.29% | ||||
September 2009 | September 2015 | $ | 250 | 4.25% | 4.44% | ||||
September 2009 | September 2019 | $ | 250 | 5.30% | 5.59% | ||||
August 2010 | November 2020 | $ | 350 | 3.88% | 3.89% | ||||
(a) | Interest payments commenced six months after issuance date and are payable semi-annually thereafter. |
(b) | Includes the effects of the amortization of any (1) premium or discount; (2) debt issuance costs; and (3) gain or loss upon settlement of related treasury locks and forward starting interest rate swaps utilized to hedge the interest rate risk prior to the debt issuance. Excludes the effect of any swaps that remain outstanding as described in Note 12. |
Year ended: | ||||||
2011 | $ | 653 | ||||
2012 | 268 | |||||
2013 | 5 | |||||
2014 | 6 | |||||
2015 | 257 | |||||
Thereafter | 2,138 | |||||
Total | $ | 3,327 | ||||
|
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Commitments | Lease Receivables | ||||||||||||||||||
Capital | Operating | Direct Financing | Operating | ||||||||||||||||
2011 | $ | 26 | $ | 550 | $ | 12 | $ | 49 | |||||||||||
2012 | 63 | 514 | 12 | 42 | |||||||||||||||
2013 | 23 | 483 | 17 | 38 | |||||||||||||||
2014 | 23 | 447 | 16 | 37 | |||||||||||||||
2015 | 23 | 405 | 13 | 34 | |||||||||||||||
Thereafter | 222 | 2,605 | 58 | 151 | |||||||||||||||
$ | 380 | $ | 5,004 | $ | 128 | $ | 351 | ||||||||||||
2010 | 2009 | 2008 | |||||||||||
Rental expense | |||||||||||||
Minimum | $ | 565 | $ | 541 | $ | 531 | |||||||
Contingent | 158 | 123 | 113 | ||||||||||
$ | 723 | $ | 664 | $ | 644 | ||||||||
Minimum rental income | $ | 44 | $ | 38 | $ | 28 | |||||||
|
|||
The fair values of derivatives designated as hedging instruments for the years ended December 25, 2010 and December 26, 2009 were: | |||||||||
Fair Value | Consolidated Balance Sheet Location | ||||||||
2010 | 2009 | ||||||||
Interest Rate Swaps - Asset | $ | 8 | $ | — | Prepaid expenses and other current assets | ||||
Interest Rate Swaps - Asset | 33 | 44 | Other assets | ||||||
Foreign Currency Forwards - Asset | 7 | 6 | Prepaid expenses and other current assets | ||||||
Foreign Currency Forwards - Liability | (3) | (3) | Accounts payable and other current liabilities | ||||||
Total | $ | 45 | $ | 47 | |||||
2010 | 2009 | ||||||
Gains (losses) recognized into OCI, net of tax | $ | 32 | $ | (9) | |||
Gains (losses) reclassified from Accumulated OCI into income, net of tax | $ | 33 | $ | (14) | |||
|
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Fair Value | ||||||||||||||||||
Level | 2010 | 2009 | ||||||||||||||||
Foreign Currency Forwards, net | 2 | $ | 4 | $ | 3 | |||||||||||||
Interest Rate Swaps, net | 2 | 41 | 44 | |||||||||||||||
Other Investments | 1 | 14 | 13 | |||||||||||||||
Total | $ | 59 | $ | 60 | ||||||||||||||
Fair Value Measurements Using | Total Losses | |||||||||||||||||||
As of December 25, 2010 | Level 1 | Level 2 | Level 3 | 2010 | ||||||||||||||||
Long-lived assets held for use | $ | 184 | — | — | 184 | 121 | ||||||||||||||
Fair Value Measurements Using | Total Losses | |||||||||||||||||||
As of December 26, 2009 | Level 1 | Level 2 | Level 3 | 2009 | ||||||||||||||||
Long-lived assets held for use | $ | 30 | — | — | 30 | 56 | ||||||||||||||
Goodwill | — | — | — | — | 38 | |||||||||||||||
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U.S. Pension Plans | International Pension Plans | ||||||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Change in benefit obligation | |||||||||||||||||||
Benefit obligation at beginning of year | $ | 1,010 | $ | 923 | $ | 176 | $ | 132 | |||||||||||
Service cost | 25 | 26 | 6 | 5 | |||||||||||||||
Interest cost | 62 | 58 | 9 | 7 | |||||||||||||||
Participant contributions | — | — | 2 | 2 | |||||||||||||||
Plan amendments | — | 1 | — | — | |||||||||||||||
Curtailment gain | (2 | ) | (9 | ) | — | — | |||||||||||||
Settlement loss | 1 | 2 | — | — | |||||||||||||||
Special termination benefits | 1 | 4 | — | — | |||||||||||||||
Exchange rate changes | — | — | (9 | ) | 15 | ||||||||||||||
Benefits paid | (57 | ) | (47 | ) | (4 | ) | (3 | ) | |||||||||||
Settlement payments | (9 | ) | (10 | ) | — | — | |||||||||||||
Actuarial (gain) loss | 77 | 62 | 7 | 18 | |||||||||||||||
Benefit obligation at end of year | $ | 1,108 | $ | 1,010 | $ | 187 | $ | 176 | |||||||||||
Change in plan assets | |||||||||||||||||||
Fair value of plan assets at beginning of year | $ | 835 | $ | 513 | $ | 141 | $ | 83 | |||||||||||
Actual return on plan assets | 108 | 132 | 14 | 20 | |||||||||||||||
Employer contributions | 35 | 252 | 17 | 28 | |||||||||||||||
Participant contributions | — | — | 2 | 2 | |||||||||||||||
Settlement payments | (9 | ) | (10 | ) | — | — | |||||||||||||
Benefits paid | (57 | ) | (47 | ) | (3 | ) | (3 | ) | |||||||||||
Exchange rate changes | — | — | (7 | ) | 11 | ||||||||||||||
Administrative expenses | (5 | ) | (5 | ) | — | — | |||||||||||||
Fair value of plan assets at end of year | $ | 907 | $ | 835 | $ | 164 | $ | 141 | |||||||||||
Funded status at end of year | $ | (201 | ) | $ | (175 | ) | $ | (23 | ) | $ | (35 | ) | |||||||
Amounts recognized in the Consolidated Balance Sheet: | |||||||||||||||||||
U.S. Pension Plans | International Pension Plans | ||||||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Accrued benefit liability – current | $ | (10 | ) | $ | (8 | ) | $ | — | $ | — | |||||||||
Accrued benefit liability – non-current | (191 | ) | (167 | ) | (23 | ) | (35 | ) | |||||||||||
$ | (201 | ) | $ | (175 | ) | $ | (23 | ) | $ | (35 | ) | ||||||||
Amounts recognized as a loss in Accumulated Other Comprehensive Income: | |||||||||||||||||||
U.S. Pension Plans | International Pension Plans | ||||||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Actuarial net loss | $ | 359 | $ | 342 | $ | 46 | $ | 48 | |||||||||||
Prior service cost | 4 | 4 | — | — | |||||||||||||||
$ | 363 | $ | 346 | $ | 46 | $ | 48 | ||||||||||||
Information for pension plans with an accumulated benefit obligation in excess of plan assets: | |||||||||||||||||||
U.S. Pension Plans | International Pension Plans | ||||||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Projected benefit obligation | $ | 1,108 | $ | 1,010 | $ | — | $ | 176 | |||||||||||
Accumulated benefit obligation | 1,057 | 958 | — | 147 | |||||||||||||||
Fair value of plan assets | 907 | 835 | — | 141 | |||||||||||||||
Information for pension plans with a projected benefit obligation in excess of plan assets: | |||||||||||||||||||
U.S. Pension Plans | International Pension Plans | ||||||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Projected benefit obligation | $ | 1,108 | $ | 1,010 | $ | 187 | $ | 176 | |||||||||||
Accumulated benefit obligation | 1,057 | 958 | 155 | 147 | |||||||||||||||
Fair value of plan assets | 907 | 835 | 164 | 141 | |||||||||||||||
U.S. Pension Plans | International Pension Plans | |||||||||||||||||||||||||||||
Net periodic benefit cost | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||||||||
Service cost | $ | 25 | $ | 26 | $ | 30 | $ | 6 | $ | 5 | $ | 8 | ||||||||||||||||||
Interest cost | 62 | 58 | 53 | 9 | 7 | 8 | ||||||||||||||||||||||||
Amortization of prior service cost(a) | 1 | 1 | — | — | — | — | ||||||||||||||||||||||||
Expected return on plan assets | (70 | ) | (59 | ) | (53 | ) | (9 | ) | (7 | ) | (9 | ) | ||||||||||||||||||
Amortization of net loss | 23 | 13 | 6 | 2 | 2 | — | ||||||||||||||||||||||||
Net periodic benefit cost | $ | 41 | $ | 39 | $ | 36 | $ | 8 | $ | 7 | $ | 7 | ||||||||||||||||||
Additional loss recognized due to: Settlement(b) | $ | 3 | $ | 2 | $ | 2 | $ | — | $ | — | $ | — | ||||||||||||||||||
Special termination benefits(c) | $ | 1 | $ | 4 | $ | 13 | $ | — | $ | — | $ | — | ||||||||||||||||||
Pension losses in accumulated other comprehensive income (loss): | |||||||||||||||||||||||
U.S. Pension Plans | International Pension Plans | ||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||
Beginning of year | $ | 346 | $ | 374 | $ | 48 | $ | 41 | |||||||||||||||
Net actuarial (gain) loss | 41 | (15 | ) | 2 | 5 | ||||||||||||||||||
Amortization of net loss | (23 | ) | (13 | ) | (2 | ) | (2 | ) | |||||||||||||||
Settlements | — | (1 | ) | — | — | ||||||||||||||||||
Prior service cost | — | 2 | — | — | |||||||||||||||||||
Amortization of prior service cost | (1 | ) | (1 | ) | — | — | |||||||||||||||||
Exchange rate changes | — | — | (2 | ) | 4 | ||||||||||||||||||
End of year | $ | 363 | $ | 346 | $ | 46 | $ | 48 | |||||||||||||||
(a) | Prior service costs are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits. |
(b) | Settlement loss results from benefit payments from a non-funded plan exceeding the sum of the service cost and interest cost for that plan during the year. |
(c) | Special termination benefits primarily related to the U.S. business transformation measures taken in 2008, 2009 and 2010. |
Weighted-average assumptions used to determine benefit obligations at the measurement dates: | |||||||||||||||||||
U.S. Pension Plans | International Pension Plans | ||||||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Discount rate | 5.90 | % | 6.30% | 5.40 | % | 5.50% | |||||||||||||
Rate of compensation increase | 3.75 | % | 3.75% | 4.42 | % | 4.42% | |||||||||||||
Weighted-average assumptions used to determine the net periodic benefit cost for fiscal years: | |||||||||||||||||||||||||||||
U.S. Pension Plans | International Pension Plans | ||||||||||||||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||||||||
Discount rate | 6.30 | % | 6.50% | 6.50% | 5.50 | % | 5.51% | 5.60% | |||||||||||||||||||||
Long-term rate of return on plan assets | 7.75 | % | 8.00% | 8.00% | 6.66 | % | 7.20% | 7.28% | |||||||||||||||||||||
Rate of compensation increase | 3.75 | % | 3.75% | 3.75% | 4.42 | % | 4.12% | 4.30% | |||||||||||||||||||||
U.S. Pension Plans | International Pension Plans | |||||||
Level 1: | ||||||||
Cash(a) | $ | 1 | $ | — | ||||
Level 2: | ||||||||
Cash Equivalents(a) | 5 | 3 | ||||||
Equity Securities – U.S. Large cap(b) | 308 | — | ||||||
Equity Securities – U.S. Mid cap(b) | 50 | — | ||||||
Equity Securities – U.S. Small cap(b) | 51 | — | ||||||
Equity Securities – Non-U.S.(b) | 97 | 99 | ||||||
Fixed Income Securities – U.S. Corporate(b) | 238 | 16 | ||||||
Fixed Income Securities – U.S. Government and Government Agencies(c) | 150 | — | ||||||
Fixed Income Securities – Non-U.S. Government(b)(c) | 20 | 36 | ||||||
Other Investments(b) | — | 10 | ||||||
Total fair value of plan assets(d) | $ | 920 | $ | 164 | ||||
(a) | Short-term investments in money market funds |
(b) | Securities held in common trusts |
(c) | Investments held by the Plan are directly held |
(d) | Excludes net payable of $13 million in the U.S. for purchases of assets included in the above that were settled after year end |
Year ended: | U.S. Pension Plans | International Pension Plans | |||||||||
2011 | $ | 54 | $ | 2 | |||||||
2012 | 41 | 2 | |||||||||
2013 | 48 | 2 | |||||||||
2014 | 46 | 2 | |||||||||
2015 | 47 | 2 | |||||||||
2016 - 2020 | 286 | 11 | |||||||||
|
|||
2010 | 2009 | 2008 | ||||||||||
Risk-free interest rate | 2.4 | % | 1.9 | % | 3.0 | % | ||||||
Expected term (years) | 6.0 | 5.9 | 6.0 | |||||||||
Expected volatility | 30.0 | % | 32.3 | % | 30.9 | % | ||||||
Expected dividend yield | 2.5 | % | 2.6 | % | 1.7 | % | ||||||
Shares | Weighted-Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value (in millions) | |||||||||||||
Outstanding at the beginning of the year | 41,665 | $ | 23.59 | |||||||||||||
Granted | 6,197 | 33.57 | ||||||||||||||
Exercised | (9,937 | ) | 16.46 | |||||||||||||
Forfeited or expired | (1,487 | ) | 31.49 | |||||||||||||
Outstanding at the end of the year | 36,438 | (a) | $ | 26.91 | 6.02 | $ | 829 | |||||||||
Exercisable at the end of the year | 20,504 | $ | 22.67 | 4.43 | $ | 553 | ||||||||||
(a) | Outstanding awards include 12,058 options and 24,380 SARs with average exercise prices of $18.52 and $31.06, respectively. |
2010 | 2009 | 2008 | ||||||
Options and SARs | $ | 40 | $ | 48 | $ | 51 | ||
Restricted Stock Units | 5 | 7 | 8 | |||||
Performance Share Units | 2 | 1 | — | |||||
Total Share-based Compensation Expense | 47 | 56 | 59 | |||||
Deferred Tax Benefit recognized | 13 | 17 | 18 | |||||
EID compensation expense not share-based | $ | 4 | $ | 4 | $ | 4 | ||
|
|||
Shares Repurchased (thousands) | Dollar Value of Shares Repurchased | ||||||||||||||||||
Authorization Date | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||
March 2010 | 2,161 | — | — | $ | 107 | $ | — | $ | — | ||||||||||
September 2009 | 7,598 | — | — | 283 | — | — | |||||||||||||
January 2008 | — | — | 23,943 | — | — | 802 | |||||||||||||
October 2007 | — | — | 22,875 | — | — | 813 | |||||||||||||
Total | 9,759 | — | 46,818 | $ | 390 | (a) | $ | — | $ | 1,615 | (b) | ||||||||
(a) | Amount includes the effect of $19 million in share repurchases (0.4 million shares) with trade dates prior to the 2010 fiscal year end but cash settlement dates subsequent to the 2010 fiscal year. |
(b) | Amount excludes the effect of $13 million in share repurchases (0.4 million shares) with trade dates prior to the 2007 fiscal year end but cash settlement dates subsequent to the 2007 fiscal year end. |
2010 | 2009 | |||||||||
Foreign currency translation adjustment | $ | 55 | $ | 47 | ||||||
Pension and post-retirement losses, net of tax | (269 | ) | (259 | ) | ||||||
Net unrealized losses on derivative instruments, net of tax | (13 | ) | (12 | ) | ||||||
Total accumulated other comprehensive loss | $ | (227 | ) | $ | (224 | ) | ||||
|
|||
2010 | 2009 | 2008 | |||||||||||
U.S. | $ | 345 | $ | 269 | $ | 430 | |||||||
Foreign | 1,249 | 1,127 | 861 | ||||||||||
$ | 1,594 | $ | 1,396 | $ | 1,291 | ||||||||
2010 | 2009 | 2008 | ||||||||||||||
Current: | Federal | $ | 155 | $ | (21 | ) | $ | 168 | ||||||||
Foreign | 356 | 251 | 151 | |||||||||||||
State | 15 | 11 | (1 | ) | ||||||||||||
526 | 241 | 318 | ||||||||||||||
Deferred: | Federal | (82) | 92 | (12 | ) | |||||||||||
Foreign | (29) | (30 | ) | 3 | ||||||||||||
State | 1 | 10 | 10 | |||||||||||||
(110) | 72 | 1 | ||||||||||||||
$ | 416 | $ | 313 | $ | 319 | |||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||
U.S. federal statutory rate | $ | 558 | 35.0 | % | $ | 489 | 35.0 | % | $ | 452 | 35.0 | % | ||||||||
State income tax, net of federal tax benefit | 12 | 0.7 | 14 | 1.0 | 5 | 0.6 | ||||||||||||||
Statutory rate differential attributable to foreign operations | (235) | (14.7) | (159 | ) | (11.4 | ) | (187 | ) | (14.5 | ) | ||||||||||
Adjustments to reserves and prior years | 55 | 3.5 | (9 | ) | (0.6 | ) | 44 | 3.5 | ||||||||||||
Change in valuation allowance | 22 | 1.4 | (9 | ) | (0.7 | ) | 12 | 0.6 | ||||||||||||
Other, net | 4 | 0.2 | (13 | ) | (0.9 | ) | (7 | ) | (0.5 | ) | ||||||||||
Effective income tax rate | $ | 416 | 26.1 | % | $ | 313 | 22.4 | % | $ | 319 | 24.7 | % | ||||||||
Valuation Allowances | |||||||||||||||
Beginning Balance | Current Year Operations | Changes in Judgment | CTA and Other Adjustments | Ending Balance | |||||||||||
U.S. state | $ | 32 | $ | (2) | $ | (3) | $ | — | $ | 27 | |||||
Foreign | 155 | 27 | - | (18) | 164 | ||||||||||
$ | 187 | $ | 25 | $ | (3) | $ | (18) | $ | 191 | ||||||
2010 | 2009 | |||||||
Net operating loss and tax credit carryforwards | $ | 220 | $ | 222 | ||||
Employee benefits | 158 | 148 | ||||||
Share-based compensation | 102 | 106 | ||||||
Self-insured casualty claims | 50 | 59 | ||||||
Lease related liabilities | 166 | 157 | ||||||
Various liabilities | 130 | 99 | ||||||
Deferred income and other | 82 | 59 | ||||||
Gross deferred tax assets | 908 | 850 | ||||||
Deferred tax asset valuation allowances | (191 | ) | (187 | ) | ||||
Net deferred tax assets | $ | 717 | $ | 663 | ||||
Intangible assets, including goodwill | $ | (243 | ) | $ | (240 | ) | ||
Property, plant and equipment | (104 | ) | (118 | ) | ||||
Other | (14 | ) | (46 | ) | ||||
Gross deferred tax liabilities | $ | (361 | ) | $ | (404 | ) | ||
Net deferred tax assets (liabilities) | $ | 356 | $ | 259 | ||||
Reported in Consolidated Balance Sheets as: | ||||||||
Deferred income taxes – current | $ | 61 | $ | 81 | ||||
Deferred income taxes – long-term | 366 | 251 | ||||||
Accounts payable and other current liabilities | (20 | ) | (7 | ) | ||||
Other liabilities and deferred credits | (51 | ) | (66 | ) | ||||
$ | 356 | $ | 259 | |||||
Year of Expiration | |||||||||||||||
2011 | 2012-2015 | 2016-2030 | Indefinitely | Total | |||||||||||
Foreign | $ | 4 | $ | 65 | $ | 142 | $ | 421 | $ | 632 | |||||
U.S. state | 12 | 88 | 1,590 | - | 1,690 | ||||||||||
$ | 16 | $ | 153 | $ | 1,732 | $ | 421 | $ | 2,322 | ||||||
2010 | 2009 | ||||||||
Beginning of Year | $ | 301 | $ | 296 | |||||
Additions on tax positions - current year | 45 | 48 | |||||||
Additions for tax positions - prior years | 35 | 59 | |||||||
Reductions for tax positions - prior years | (19 | ) | (68 | ) | |||||
Reductions for settlements | (41 | ) | (33 | ) | |||||
Reductions due to statute expiration | (10 | ) | (6 | ) | |||||
Foreign currency translation adjustment | (3 | ) | 5 | ||||||
End of Year | $ | 308 | $ | 301 | |||||
Jurisdiction | Open Tax Years | ||
U.S. Federal | 1999 – 2010 | ||
China | 2007 – 2010 | ||
United Kingdom | 2003 – 2010 | ||
Mexico | 2001 – 2010 | ||
Australia | 2006 - 2010 |
2010 | 2009 | ||||||||||||
Accrued interest and penalties | $ | 48 | $ | 41 | |||||||||
|
|||
Revenues | ||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||
China Division | $ | 4,135 | $ | 3,407 | $ | 2,840 | ||||||||||
YRI | 3,088 | 2,988 | 3,332 | |||||||||||||
U.S. | 4,120 | 4,473 | 5,132 | |||||||||||||
Unallocated Franchise and license fees and income(a)(b) | — | (32 | ) | — | ||||||||||||
$ | 11,343 | $ | 10,836 | $ | 11,304 | |||||||||||
Operating Profit; Interest Expense, Net; and Income Before Income Taxes | ||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||
China Division(c) | $ | 755 | $ | 596 | $ | 471 | ||||||||||
YRI | 589 | 497 | 531 | |||||||||||||
U.S. | 668 | 647 | 641 | |||||||||||||
Unallocated Franchise and license fees and income(a)(b) | — | (32 | ) | — | ||||||||||||
Unallocated Occupancy and other(b)(d) | 9 | — | — | |||||||||||||
Unallocated and corporate expenses(b)(e) | (194 | ) | (189 | ) | (248 | ) | ||||||||||
Unallocated Impairment expense(b)(f) | — | (26 | ) | — | ||||||||||||
Unallocated Other income (expense)(b)(g) | 5 | 71 | 117 | |||||||||||||
Unallocated Refranchising gain (loss)(b) | (63 | ) | 26 | 5 | ||||||||||||
Operating Profit | 1,769 | 1,590 | 1,517 | |||||||||||||
Interest expense, net | (175 | ) | (194 | ) | (226 | ) | ||||||||||
Income Before Income Taxes | $ | 1,594 | $ | 1,396 | $ | 1,291 | ||||||||||
Depreciation and Amortization | ||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||
China Division | $ | 225 | $ | 184 | $ | 136 | ||||||||||
YRI | 159 | 165 | 173 | |||||||||||||
U.S. | 201 | 216 | 231 | |||||||||||||
Corporate(d) | 4 | 15 | 16 | |||||||||||||
$ | 589 | $ | 580 | $ | 556 | |||||||||||
Capital Spending | ||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||
China Division | $ | 272 | $ | 271 | $ | 300 | ||||||||||
YRI | 259 | 251 | 280 | |||||||||||||
U.S. | 241 | 270 | 349 | |||||||||||||
Corporate | 24 | 5 | 6 | |||||||||||||
$ | 796 | $ | 797 | $ | 935 | |||||||||||
Identifiable Assets | ||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||
China Division(h) | $ | 2,289 | $ | 1,632 | $ | 1,251 | ||||||||||
YRI | 2,649 | 2,448 | 2,017 | |||||||||||||
U.S. | 2,398 | 2,575 | 2,739 | |||||||||||||
Corporate(i) | 980 | 493 | 520 | |||||||||||||
$ | 8,316 | $ | 7,148 | $ | 6,527 | |||||||||||
Long-Lived Assets(j) | ||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||
China Division | $ | 1,269 | $ | 1,172 | $ | 905 | ||||||||||
YRI | 1,548 | 1,524 | 1,269 | |||||||||||||
U.S. | 2,095 | 2,260 | 2,413 | |||||||||||||
Corporate | 52 | 45 | 63 | |||||||||||||
$ | 4,964 | $ | 5,001 | $ | 4,650 | |||||||||||
(a) | Amount consists of reimbursements to KFC franchisees for installation costs of ovens for the national launch of Kentucky Grilled Chicken. See Note 4. |
(b) | Amounts have not been allocated to the U.S., YRI or China Division segments for performance reporting purposes. |
(c) | Includes equity income from investments in of unconsolidated affiliates of $42 million, $36 million and $40 million in 2010, 2009 and 2008, respectively, for the China Division. |
(d) | 2010 includes a $9 million depreciation reduction arising from the impairment of KFC restaurants we offered to sell in 2010. See Note 4. |
(e) | 2010, 2009 and 2008 include approximately $9 million, $16 million and $49 million, respectively, of charges relating to U.S. general and administrative productivity initiatives and realignment of resources. Additionally, 2008 includes $7 million of charges relating to investments in our U.S. Brands. See Note 4. |
(f) | 2009 includes a $26 million charge to write-off goodwill associated with our LJS and A&W businesses in the U.S. See Note 9. |
(g) | 2009 includes a $68 million gain related to the acquisition of additional interest in and consolidation of a former unconsolidated affiliate in China and 2008 includes a $100 million gain recognized on the sale of our interest in our unconsolidated affiliate in Japan. See Note 4. |
(h) | China Division includes investment in 4 unconsolidated affiliates totaling $154 million, $144 million and $65 million, for 2010, 2009 and 2008, respectively. The 2009 increase was driven by our acquisition of interest in Little Sheep, net of our acquisition of additional interest in and consolidation of our unconsolidated affiliate in Shanghai, China. See Note 4. |
(i) | Primarily includes cash, deferred tax assets and property, plant and equipment, net, related to our office facilities. |
(j) | Includes property, plant and equipment, net, goodwill, and intangible assets, net. |
|
|||
Beginning Balance | Expense | Payments | Ending Balance | ||||||||||||
2010 Activity | $ | 173 | 46 | (69 | ) | $ | 150 | ||||||||
2009 Activity | $ | 196 | 44 | (67 | ) | $ | 173 | ||||||||
|
|||
2010 | |||||||||||||||
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | |||||||||||
Revenues: | |||||||||||||||
Company sales | $ | 1,996 | $ | 2,220 | $ | 2,496 | $ | 3,071 | $ | 9,783 | |||||
Franchise and license fees and income | 349 | 354 | 366 | 491 | 1,560 | ||||||||||
Total revenues | 2,345 | 2,574 | 2,862 | 3,562 | 11,343 | ||||||||||
Restaurant profit | 340 | 366 | 479 | 478 | 1,663 | ||||||||||
Operating Profit(a) | 364 | 421 | 544 | 440 | 1,769 | ||||||||||
Net Income – YUM! Brands, Inc. | 241 | 286 | 357 | 274 | 1,158 | ||||||||||
Basic earnings per common share | 0.51 | 0.61 | 0.76 | 0.58 | 2.44 | ||||||||||
Diluted earnings per common share | 0.50 | 0.59 | 0.74 | 0.56 | 2.38 | ||||||||||
Dividends declared per common share | 0.21 | 0.21 | — | 0.50 | 0.92 | ||||||||||
2009 | |||||||||||||||
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | |||||||||||
Revenues: | |||||||||||||||
Company sales | $ | 1,918 | $ | 2,152 | $ | 2,432 | $ | 2,911 | $ | 9,413 | |||||
Franchise and license fees and income | 299 | 324 | 346 | 454 | 1,423 | ||||||||||
Total revenues | 2,217 | 2,476 | 2,778 | 3,365 | 10,836 | ||||||||||
Restaurant profit | 308 | 324 | 425 | 422 | 1,479 | ||||||||||
Operating Profit(b) | 351 | 394 | 470 | 375 | 1,590 | ||||||||||
Net Income – YUM! Brands, Inc. | 218 | 303 | 334 | 216 | 1,071 | ||||||||||
Basic earnings per common share | 0.47 | 0.65 | 0.71 | 0.46 | 2.28 | ||||||||||
Diluted earnings per common share | 0.46 | 0.63 | 0.69 | 0.45 | 2.22 | ||||||||||
Dividends declared per common share | — | 0.38 | — | 0.42 | 0.80 | ||||||||||
(a) | Includes net gains of $6 million and $2 million in the second and third quarters of 2010, respectively, and net losses of $66 million and $19 million in the first and fourth quarters of 2010, respectively, related to the U.S. business transformation measures and refranchising international markets. See Note 4. |
(b) | Includes net losses of $17 million, $3 million and $22 million in the first, third and fourth quarters of 2009, respectively, and a net gain of $60 million in the second quarter of 2009 related to the consolidation of a former unconsolidated affiliate, charges related to the U.S. business transformation measures and an impairment of an international market. See Note 4. |
|
|||
|
|||
Level 1 | Inputs based upon quoted prices in active markets for identical assets. |
Level 2 | Inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly. |
Level 3 | Inputs that are unobservable for the asset. |
2010 | 2009 | ||||||
Accounts and notes receivable | $ | 289 | $ | 274 | |||
Allowance for doubtful accounts | (33) | (35) | |||||
Accounts and notes receivable, net | $ | 256 | $ | 239 | |||
|
|||
2010 | 2009 | |||||||
Accounts and notes receivable | $ | 289 | $ | 274 | ||||
Allowance for doubtful accounts | (33) | (35) | ||||||
Accounts and notes receivable, net | $ | 256 | $ | 239 | ||||
|
|||
2010 | 2009 | 2008 | |||||||||||
Net Income - YUM! Brands, Inc. | $ | 1,158 | $ | 1,071 | $ | 964 | |||||||
Weighted-average common shares outstanding (for basic calculation) | 474 | 471 | 475 | ||||||||||
Effect of dilutive share-based employee compensation | 12 | 12 | 16 | ||||||||||
Weighted-average common and dilutive potential common shares outstanding (for diluted calculation) | 486 | 483 | 491 | ||||||||||
Basic EPS | $ | 2.44 | $ | 2.28 | $ | 2.03 | |||||||
Diluted EPS | $ | 2.38 | $ | 2.22 | $ | 1.96 | |||||||
Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation(a) | 2.2 | 13.3 | 5.9 | ||||||||||
(a) | These unexercised employee stock options and stock appreciation rights were not included in the computation of diluted EPS because to do so would have been antidilutive for the periods presented. |
|
|||
2010 | |||||||||||||||||||
China Division | YRI | U.S. | Worldwide | ||||||||||||||||
Refranchising (gain) loss(a) (b) (c) | $ | (8 | ) | $ | 53 | $ | 18 | $ | 63 | ||||||||||
Store closure (income) costs(d) | $ | - | $ | 2 | $ | 3 | $ | 5 | |||||||||||
Store impairment charges | 16 | 12 | 14 | 42 | |||||||||||||||
Closure and impairment (income) expenses | $ | 16 | $ | 14 | $ | 17 | $ | 47 | |||||||||||
2009 | |||||||||||||||||||
China Division | YRI | U.S. | Worldwide | ||||||||||||||||
Refranchising (gain) loss(a) (c) | $ | (3 | ) | $ | 11 | $ | (34 | ) | $ | (26 | ) | ||||||||
Store closure (income) costs(d) | $ | (4 | ) | $ | - | $ | 13 | $ | 9 | ||||||||||
Store impairment charges(e) | 13 | 22 | 33 | 68 | |||||||||||||||
Closure and impairment (income) expenses(f) | $ | 9 | $ | 22 | $ | 46 | $ | 77 | |||||||||||
2008 | |||||||||||||||||||
China Division | YRI | U.S. | Worldwide | ||||||||||||||||
Refranchising (gain) loss(a) | $ | (1 | ) | $ | (9 | ) | $ | 5 | $ | (5 | ) | ||||||||
Store closure (income) costs(d) | $ | (3 | ) | $ | (5 | ) | $ | (4 | ) | $ | (12 | ) | |||||||
Store impairment charges | 7 | 14 | 34 | 55 | |||||||||||||||
Closure and impairment (income) expenses | $ | 4 | $ | 9 | $ | 30 | $ | 43 | |||||||||||
(a) | Refranchising (gain) loss is not allocated to segments for performance reporting purposes. |
(b) | U.S. refranchising loss for the year ended December 25, 2010 is the net result of gains from 404 restaurants sold and non-cash impairment charges related to our offers to refranchise KFCs in the U.S. While we did not yet believe these KFCs met the criteria to be classified as held for sale, we did, consistent with our historical practice, review the restaurants for impairment as a result of our offer to refranchise. We recorded impairment charges where we determined that the carrying value of restaurant groups to be sold was not recoverable based upon our estimate of expected refranchising proceeds and holding period cash flows anticipated while we continue to operate the restaurants as company units. For those restaurant groups deemed impaired, we wrote such restaurant groups down to our estimate of their fair values, which were based on the sales price we would expect to receive from a franchisee for each restaurant group. This fair value determination considered current market conditions, real-estate values, trends in the KFC-U.S. business, prices for similar transactions in the restaurant industry and preliminary offers for the restaurant group to date. We continued to depreciate the pre-impairment charges carrying value of these restaurants for periods prior to impairment being recorded and continued to depreciate the post-impairment charges carrying value thereafter. We will continue to depreciate the post-impairment charges carrying value going forward until the date we believe the held for sale criteria for any restaurants are met. Additionally, we will continue to review the restaurant groups for any further necessary impairment. The aforementioned non-cash write downs totaling $85 million do not include any allocation of the KFC reporting unit goodwill in the restaurant group carrying value. This additional non-cash write down would be recorded, consistent with our historical policy, if the restaurant groups, or any subset of the restaurant groups, ultimately meet the criteria to be classified as held for sale. We will also be required to record a charge for the fair value of our guarantee of future lease payments for leases we assign to the franchisee upon any sale. |
(c) | In the fourth quarter of 2010 we recorded a $52 million loss on the refranchising of our Mexico equity market as we sold all of our company owned restaurants, comprised of 222 KFCs and 123 Pizza Huts, to an existing Latin American franchise partner. The buyer will also serve as the master franchisee for Mexico which had 102 KFCs and 53 Pizza Hut franchise restaurants at the time of the transaction. The write off of goodwill included in this loss was minimal as our Mexico reporting unit includes an insignificant amount of goodwill. This loss did not result in any related income tax benefit and was not allocated to any segment for performance reporting purposes. During the year ended December 26, 2009 we recognized a non-cash $10 million refranchising loss as a result of our decision to offer to refranchise our KFC Taiwan equity market. During the year ended December 25, 2010 we refranchised all of our remaining company restaurants in Taiwan, which consisted of 124 KFCs. We included in our December 25, 2010 financial statements a non-cash write-off of $7 million of goodwill in determining the loss on refranchising of Taiwan. Neither of these losses resulted in a related income tax benefit, and neither loss was allocated to any segment for performance reporting purposes. The amount of goodwill write-off was based on the relative fair values of the Taiwan business disposed of and the portion of the business that was retained. The fair value of the business disposed of was determined by reference to the discounted value of the future cash flows expected to be generated by the restaurants and retained by the franchisee, which include a deduction for the anticipated royalties the franchisee will pay the Company associated with the franchise agreement entered into in connection with this refranchising transaction. The fair value of the Taiwan business retained consists of expected, net cash flows to be derived from royalties from franchisees, including the royalties associated with the franchise agreement entered into in connection with this refranchising transaction. We believe the terms of the franchise agreement entered into in connection with the Taiwan refranchising are substantially consistent with market. The remaining carrying value of goodwill related to our Taiwan business of $30 million, after the aforementioned write-off, was determined not to be impaired as the fair value of the Taiwan reporting unit exceeded its carrying amount. | |
(d) | Store closure (income) costs include the net gain or loss on sales of real estate on which we formerly operated a Company restaurant that was closed, lease reserves established when we cease using a property under an operating lease and subsequent adjustments to those reserves and other facility-related expenses from previously closed stores. | |
(e) | The 2009 store impairment charges for YRI include $12 million of goodwill impairment for our Pizza Hut South Korea market. See Note 9. | |
(f) | In 2009, an additional $26 million of goodwill impairment related to our LJS and A&W-U.S. businesses was not allocated to segments for performance reporting purposes and is not included in this table. See Note 9. | |
Beginning Balance | Amounts Used | New Decisions | Estimate/Decision Changes | CTA/ Other | Ending Balance | ||||||||||||||||||||||
2010 Activity | $ | 27 | (12 | ) | 8 | - | 5 | $ | 28 | ||||||||||||||||||
2009 Activity | $ | 27 | (12 | ) | 10 | 4 | (2 | ) | $ | 27 | |||||||||||||||||
|
|||
2010 | 2009 | 2008 | ||||||||||||
Cash Paid For: | ||||||||||||||
Interest | $ | 190 | $ | 209 | $ | 248 | ||||||||
Income taxes | 357 | 308 | 260 | |||||||||||
Significant Non-Cash Investing and Financing Activities: | ||||||||||||||
Capital lease obligations incurred to acquire assets | $ | 16 | $ | 7 | $ | 24 | ||||||||
Net investment in direct financing leases | 2 | 8 | 26 | |||||||||||
Increase (decrease) in accrued capital expenditures | 51 | (17 | ) | 12 | ||||||||||
|
|||
2010 | 2009 | 2008 | ||||||||||||
Initial fees, including renewal fees | $ | 54 | $ | 57 | $ | 61 | ||||||||
Initial franchise fees included in refranchising gains | (15 | ) | (17 | ) | (20 | ) | ||||||||
39 | 40 | 41 | ||||||||||||
Continuing fees and rental income | 1,521 | 1,383 | 1,420 | |||||||||||
$ | 1,560 | $ | 1,423 | $ | 1,461 | |||||||||
|
|||
2010 | 2009 | 2008 | |||||||||||
Equity income from investments in unconsolidated affiliates | $ | (42 | ) | $ | (36 | ) | $ | (41 | ) | ||||
Gain upon consolidation of a former unconsolidated affiliate in China(a) | - | (68 | ) | - | |||||||||
Gain upon sale of investment in unconsolidated affiliate(b) | - | - | (100 | ) | |||||||||
Foreign exchange net (gain) loss and other | (1 | ) | - | (16 | ) | ||||||||
Other (income) expense | $ | (43 | ) | $ | (104 | ) | $ | (157 | ) | ||||
(a) | See Note 4 for further discussion of the consolidation of a former unconsolidated affiliate in Shanghai, China. |
(b) | Fiscal year 2008 reflects the gain recognized on the sale of our interest in our unconsolidated affiliate in Japan. See Note 4. |
|
|||
2010 | 2009 | |||||||
Accounts and notes receivable | $ | 289 | $ | 274 | ||||
Allowance for doubtful accounts | (33) | (35) | ||||||
Accounts and notes receivable, net | $ | 256 | $ | 239 | ||||
Prepaid Expenses and Other Current Assets | 2010 | 2009 | ||||||||
Income tax receivable | $ | 115 | $ | 158 | ||||||
Other prepaid expenses and current assets | 154 | 156 | ||||||||
$ | 269 | $ | 314 | |||||||
Property, Plant and Equipment | 2010 | 2009 | ||||||||
Land | $ | 542 | $ | 538 | ||||||
Buildings and improvements | 3,709 | 3,800 | ||||||||
Capital leases, primarily buildings | 274 | 282 | ||||||||
Machinery and equipment | 2,578 | 2,627 | ||||||||
Property, Plant and equipment, gross | 7,103 | 7,247 | ||||||||
Accumulated depreciation and amortization | (3,273 | ) | (3,348 | ) | ||||||
Property, Plant and equipment, net | $ | 3,830 | $ | 3,899 | ||||||
Accounts Payable and Other Current Liabilities | 2010 | 2009 | ||||||||
Accounts payable | $ | 540 | $ | 499 | ||||||
Accrued capital expenditures | 174 | 123 | ||||||||
Accrued compensation and benefits | 357 | 342 | ||||||||
Dividends payable | 118 | 98 | ||||||||
Accrued taxes, other than income taxes | 95 | 100 | ||||||||
Other current liabilities | 318 | 251 | ||||||||
$ | 1,602 | $ | 1,413 | |||||||
|
|||
China Division | YRI | U.S. | Worldwide | ||||||||||||||||
Balance as of December 27, 2008 | |||||||||||||||||||
Goodwill, gross | $ | 30 | $ | 224 | $ | 356 | $ | 610 | |||||||||||
Accumulated impairment losses | - | (5 | ) | - | (5 | ) | |||||||||||||
Goodwill, net | 30 | 219 | 356 | 605 | |||||||||||||||
Acquisitions | 52 | - | 1 | 54 | |||||||||||||||
Impairment losses(a) (b) | - | (12 | ) | (26 | ) | (38 | ) | ||||||||||||
Disposals and other, net(c) | - | 25 | (5 | ) | 19 | ||||||||||||||
Balance as of December 26, 2009 | |||||||||||||||||||
Goodwill, gross | 82 | 249 | 352 | 683 | |||||||||||||||
Accumulated impairment losses | - | (17 | ) | (26 | ) | (43 | ) | ||||||||||||
Goodwill, net | 82 | 232 | 326 | 640 | |||||||||||||||
Acquisitions(d) | - | 37 | - | 37 | |||||||||||||||
Disposals and other, net(c) | 3 | (17 | ) | (4 | ) | (18 | ) | ||||||||||||
Balance as of December 25, 2010 | |||||||||||||||||||
Goodwill, gross | 85 | 269 | 348 | 702 | |||||||||||||||
Accumulated impairment losses | - | (17 | ) | (26 | ) | (43 | ) | ||||||||||||
Goodwill, net | $ | 85 | $ | 252 | $ | 322 | $ | 659 | |||||||||||
(a) | We recorded a non-cash goodwill impairment charge of $26 million, which resulted in no related tax benefit, associated with our LJS and A&W-U.S. reporting unit in the fourth quarter of 2009 as the carrying value of this reporting unit exceeded its fair value. The fair value of the reporting unit was based on our discounted expected after-tax cash flows from the future royalty stream, net of G&A, expected to be earned from the underlying franchise agreements. These cash flows incorporated the decline in future profit expectations for our LJS and A&W-U.S. reporting unit which were due in part to the impact of a reduced emphasis on multi-branding as a U.S. growth strategy. This charge was recorded in Closure and impairment (income) expenses in our Consolidated Statement of Income and was not allocated to the U.S. segment for performance reporting purposes. See Note 4. |
(b) | We recorded a non-cash goodwill impairment charge of $12 million for our Pizza Hut South Korea reporting unit in the fourth quarter of 2009 as the carrying value of this reporting unit exceeded its fair value. The fair value of this reporting unit was based on the discounted expected after-tax cash flows from company operations and franchise royalties for the business. Our expectations of future cash flows were negatively impacted by recent profit declines the business has experienced. This charge was recorded in Closure and impairment (income) expenses in our Consolidated Statement of Income and was allocated to our International segment for performance reporting purposes. |
(c) | Disposals and other, net includes the impact of foreign currency translation on existing balances and goodwill write-offs associated with refranchising. |
(d) | We recorded goodwill in our International segment related to the July 1, 2010 exercise of our option with our Russian partner to purchase their interest in the co-branded Rostik's-KFC restaurants across Russia and the Commonwealth of Independent States. See Note 4. |
2010 | 2009 | ||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||||||
Definite-lived intangible assets | |||||||||||||||||||
Franchise contract rights | $ | 163 | $ | (83 | ) | $ | 153 | $ | (78 | ) | |||||||||
Trademarks/brands | 234 | (57 | ) | 225 | (48 | ) | |||||||||||||
Lease tenancy rights | 56 | (12 | ) | 66 | (24 | ) | |||||||||||||
Favorable operating leases | 27 | (10 | ) | 27 | (8 | ) | |||||||||||||
Reacquired franchise rights | 143 | (20 | ) | 121 | (8 | ) | |||||||||||||
Other | 5 | (2 | ) | 7 | (2 | ) | |||||||||||||
$ | 628 | $ | (184 | ) | $ | 599 | $ | (168 | ) | ||||||||||
Indefinite-lived intangible assets | |||||||||||||||||||
Trademarks/brands | $ | 31 | $ | 31 |
|
|||
2010 | 2009 | ||||||||
Short-term Borrowings | |||||||||
Current maturities of long-term debt | $ | 673 | $ | 56 | |||||
Other | - | 3 | |||||||
$ | 673 | $ | 59 | ||||||
Long-term Debt | |||||||||
Unsecured International Revolving Credit Facility, expires November 2012 | $ | - | $ | - | |||||
Unsecured Revolving Credit Facility, expires November 2012 | - | 5 | |||||||
Senior Unsecured Notes | 3,257 | 2,906 | |||||||
Capital lease obligations (See Note 11) | 236 | 249 | |||||||
Other, due through 2019 (11%) | 64 | 67 | |||||||
3,557 | 3,227 | ||||||||
Less current maturities of long-term debt | (673 | ) | (56 | ) | |||||
Long-term debt excluding hedge accounting adjustment | 2,884 | 3,171 | |||||||
Derivative instrument hedge accounting adjustment (See Note 12) | 31 | 36 | |||||||
Long-term debt including hedge accounting adjustment | $ | 2,915 | $ | 3,207 |
Interest Rate | |||||||||
Issuance Date(a) | Maturity Date | Principal Amount (in millions) | Stated | Effective(b) | |||||
April 2001 | April 2011 | $ | 650 | 8.88% | 9.20% | ||||
June 2002 | July 2012 | $ | 263 | 7.70% | 8.04% | ||||
April 2006 | April 2016 | $ | 300 | 6.25% | 6.03% | ||||
October 2007 | March 2018 | $ | 600 | 6.25% | 6.38% | ||||
October 2007 | November 2037 | $ | 600 | 6.88% | 7.29% | ||||
September 2009 | September 2015 | $ | 250 | 4.25% | 4.44% | ||||
September 2009 | September 2019 | $ | 250 | 5.30% | 5.59% | ||||
August 2010 | November 2020 | $ | 350 | 3.88% | 3.89% | ||||
(a) | Interest payments commenced six months after issuance date and are payable semi-annually thereafter. |
(b) | Includes the effects of the amortization of any (1) premium or discount; (2) debt issuance costs; and (3) gain or loss upon settlement of related treasury locks and forward starting interest rate swaps utilized to hedge the interest rate risk prior to the debt issuance. Excludes the effect of any swaps that remain outstanding as described in Note 12. |
Year ended: | |||||
2011 | $ | 653 | |||
2012 | 268 | ||||
2013 | 5 | ||||
2014 | 6 | ||||
2015 | 257 | ||||
Thereafter | 2,138 | ||||
Total | $ | 3,327 | |||
|
|||
Commitments | Lease Receivables | ||||||||||||||||||
Capital | Operating | Direct Financing | Operating | ||||||||||||||||
2011 | $ | 26 | $ | 550 | $ | 12 | $ | 49 | |||||||||||
2012 | 63 | 514 | 12 | 42 | |||||||||||||||
2013 | 23 | 483 | 17 | 38 | |||||||||||||||
2014 | 23 | 447 | 16 | 37 | |||||||||||||||
2015 | 23 | 405 | 13 | 34 | |||||||||||||||
Thereafter | 222 | 2,605 | 58 | 151 | |||||||||||||||
$ | 380 | $ | 5,004 | $ | 128 | $ | 351 | ||||||||||||
2010 | 2009 | 2008 | |||||||||||
Rental expense | |||||||||||||
Minimum | $ | 565 | $ | 541 | $ | 531 | |||||||
Contingent | 158 | 123 | 113 | ||||||||||
$ | 723 | $ | 664 | $ | 644 | ||||||||
Minimum rental income | $ | 44 | $ | 38 | $ | 28 | |||||||
|
|||
Fair Value | Consolidated Balance Sheet Location | ||||||||
2010 | 2009 | ||||||||
Interest Rate Swaps - Asset | $ | 8 | $ | - | Prepaid expenses and other current assets | ||||
Interest Rate Swaps - Asset | 33 | 44 | Other assets | ||||||
Foreign Currency Forwards - Asset | 7 | 6 | Prepaid expenses and other current assets | ||||||
Foreign Currency Forwards - Liability | (3) | (3) | Accounts payable and other current liabilities | ||||||
Total | $ | 45 | $ | 47 | |||||
2010 | 2009 | ||||||
Gains (losses) recognized into OCI, net of tax | $ | 32 | $ | (9) | |||
Gains (losses) reclassified from Accumulated OCI into income, net of tax | $ | 33 | $ | (14) | |||
|
|||
Fair Value | ||||||||||||||||||
Level | 2010 | 2009 | ||||||||||||||||
Foreign Currency Forwards, net | 2 | $ | 4 | $ | 3 | |||||||||||||
Interest Rate Swaps, net | 2 | 41 | 44 | |||||||||||||||
Other Investments | 1 | 14 | 13 | |||||||||||||||
Total | $ | 59 | $ | 60 | ||||||||||||||
Fair Value Measurements Using | Total Losses | |||||||||||||||||||
As of December 25, 2010 | Level 1 | Level 2 | Level 3 | 2010 | ||||||||||||||||
Long-lived assets held for use | $ | 184 | - | - | 184 | 121 | ||||||||||||||
Fair Value Measurements Using | Total Losses | |||||||||||||||||||
As of December 26, 2009 | Level 1 | Level 2 | Level 3 | 2009 | ||||||||||||||||
Long-lived assets held for use | $ | 30 | - | - | 30 | 56 | ||||||||||||||
Goodwill | - | - | - | - | 38 | |||||||||||||||
|
|||
U.S. Pension Plans | International Pension Plans | ||||||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Change in benefit obligation | |||||||||||||||||||
Benefit obligation at beginning of year | $ | 1,010 | $ | 923 | $ | 176 | $ | 132 | |||||||||||
Service cost | 25 | 26 | 6 | 5 | |||||||||||||||
Interest cost | 62 | 58 | 9 | 7 | |||||||||||||||
Participant contributions | - | - | 2 | 2 | |||||||||||||||
Plan amendments | - | 1 | - | - | |||||||||||||||
Curtailment gain | (2 | ) | (9 | ) | - | - | |||||||||||||
Settlement loss | 1 | 2 | - | - | |||||||||||||||
Special termination benefits | 1 | 4 | - | - | |||||||||||||||
Exchange rate changes | - | - | (9 | ) | 15 | ||||||||||||||
Benefits paid | (57 | ) | (47 | ) | (4 | ) | (3 | ) | |||||||||||
Settlement payments | (9 | ) | (10 | ) | - | - | |||||||||||||
Actuarial (gain) loss | 77 | 62 | 7 | 18 | |||||||||||||||
Benefit obligation at end of year | $ | 1,108 | $ | 1,010 | $ | 187 | $ | 176 | |||||||||||
Change in plan assets | |||||||||||||||||||
Fair value of plan assets at beginning of year | $ | 835 | $ | 513 | $ | 141 | $ | 83 | |||||||||||
Actual return on plan assets | 108 | 132 | 14 | 20 | |||||||||||||||
Employer contributions | 35 | 252 | 17 | 28 | |||||||||||||||
Participant contributions | - | - | 2 | 2 | |||||||||||||||
Settlement payments | (9 | ) | (10 | ) | - | - | |||||||||||||
Benefits paid | (57 | ) | (47 | ) | (3 | ) | (3 | ) | |||||||||||
Exchange rate changes | - | - | (7 | ) | 11 | ||||||||||||||
Administrative expenses | (5 | ) | (5 | ) | - | - | |||||||||||||
Fair value of plan assets at end of year | $ | 907 | $ | 835 | $ | 164 | $ | 141 | |||||||||||
Funded status at end of year | $ | (201 | ) | $ | (175 | ) | $ | (23 | ) | $ | (35 | ) | |||||||
Amounts recognized in the Consolidated Balance Sheet: | |||||||||||||||||||
U.S. Pension Plans | International Pension Plans | ||||||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Accrued benefit liability - current | $ | (10 | ) | $ | (8 | ) | $ | - | $ | - | |||||||||
Accrued benefit liability - non-current | (191 | ) | (167 | ) | (23 | ) | (35 | ) | |||||||||||
$ | (201 | ) | $ | (175 | ) | $ | (23 | ) | $ | (35 | ) | ||||||||
Amounts recognized as a loss in Accumulated Other Comprehensive Income: | |||||||||||||||||||
U.S. Pension Plans | International Pension Plans | ||||||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Actuarial net loss | $ | 359 | $ | 342 | $ | 46 | $ | 48 | |||||||||||
Prior service cost | 4 | 4 | - | - | |||||||||||||||
$ | 363 | $ | 346 | $ | 46 | $ | 48 | ||||||||||||
Information for pension plans with an accumulated benefit obligation in excess of plan assets: | |||||||||||||||||||
U.S. Pension Plans | International Pension Plans | ||||||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Projected benefit obligation | $ | 1,108 | $ | 1,010 | $ | - | $ | 176 | |||||||||||
Accumulated benefit obligation | 1,057 | 958 | - | 147 | |||||||||||||||
Fair value of plan assets | 907 | 835 | - | 141 | |||||||||||||||
Information for pension plans with a projected benefit obligation in excess of plan assets: | |||||||||||||||||||
U.S. Pension Plans | International Pension Plans | ||||||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Projected benefit obligation | $ | 1,108 | $ | 1,010 | $ | 187 | $ | 176 | |||||||||||
Accumulated benefit obligation | 1,057 | 958 | 155 | 147 | |||||||||||||||
Fair value of plan assets | 907 | 835 | 164 | 141 | |||||||||||||||
U.S. Pension Plans | International Pension Plans | |||||||||||||||||||||||||||||
Net periodic benefit cost | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||||||||
Service cost | $ | 25 | $ | 26 | $ | 30 | $ | 6 | $ | 5 | $ | 8 | ||||||||||||||||||
Interest cost | 62 | 58 | 53 | 9 | 7 | 8 | ||||||||||||||||||||||||
Amortization of prior service cost(a) | 1 | 1 | - | - | - | - | ||||||||||||||||||||||||
Expected return on plan assets | (70 | ) | (59 | ) | (53 | ) | (9 | ) | (7 | ) | (9 | ) | ||||||||||||||||||
Amortization of net loss | 23 | 13 | 6 | 2 | 2 | - | ||||||||||||||||||||||||
Net periodic benefit cost | $ | 41 | $ | 39 | $ | 36 | $ | 8 | $ | 7 | $ | 7 | ||||||||||||||||||
Additional loss recognized due to: Settlement(b) | $ | 3 | $ | 2 | $ | 2 | $ | - | $ | - | $ | - | ||||||||||||||||||
Special termination benefits(c) | $ | 1 | $ | 4 | $ | 13 | $ | - | $ | - | $ | - | ||||||||||||||||||
Pension losses in accumulated other comprehensive income (loss): | |||||||||||||||||||||||
U.S. Pension Plans | International Pension Plans | ||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||
Beginning of year | $ | 346 | $ | 374 | $ | 48 | $ | 41 | |||||||||||||||
Net actuarial (gain) loss | 41 | (15 | ) | 2 | 5 | ||||||||||||||||||
Amortization of net loss | (23 | ) | (13 | ) | (2 | ) | (2 | ) | |||||||||||||||
Settlements | - | (1 | ) | - | - | ||||||||||||||||||
Prior service cost | - | 2 | - | - | |||||||||||||||||||
Amortization of prior service cost | (1 | ) | (1 | ) | - | - | |||||||||||||||||
Exchange rate changes | - | - | (2 | ) | 4 | ||||||||||||||||||
End of year | $ | 363 | $ | 346 | $ | 46 | $ | 48 | |||||||||||||||
(a) | Prior service costs are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits. |
(b) | Settlement loss results from benefit payments from a non-funded plan exceeding the sum of the service cost and interest cost for that plan during the year. |
(c) | Special termination benefits primarily related to the U.S. business transformation measures taken in 2008, 2009 and 2010. |
Weighted-average assumptions used to determine benefit obligations at the measurement dates: | |||||||||||||||||||
U.S. Pension Plans | International Pension Plans | ||||||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Discount rate | 5.90 | % | 6.30% | 5.40 | % | 5.50% | |||||||||||||
Rate of compensation increase | 3.75 | % | 3.75% | 4.42 | % | 4.42% | |||||||||||||
Weighted-average assumptions used to determine the net periodic benefit cost for fiscal years: | |||||||||||||||||||||||||||||
U.S. Pension Plans | International Pension Plans | ||||||||||||||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||||||||
Discount rate | 6.30 | % | 6.50% | 6.50% | 5.50 | % | 5.51% | 5.60% | |||||||||||||||||||||
Long-term rate of return on plan assets | 7.75 | % | 8.00% | 8.00% | 6.66 | % | 7.20% | 7.28% | |||||||||||||||||||||
Rate of compensation increase | 3.75 | % | 3.75% | 3.75% | 4.42 | % | 4.12% | 4.30% | |||||||||||||||||||||
U.S. Pension Plans | International Pension Plans | |||||||
Level 1: | ||||||||
Cash(a) | $ | 1 | $ | - | ||||
Level 2: | ||||||||
Cash Equivalents(a) | 5 | 3 | ||||||
Equity Securities - U.S. Large cap(b) | 308 | - | ||||||
Equity Securities - U.S. Mid cap(b) | 50 | - | ||||||
Equity Securities - U.S. Small cap(b) | 51 | - | ||||||
Equity Securities - Non-U.S.(b) | 97 | 99 | ||||||
Fixed Income Securities - U.S. Corporate(b) | 238 | 16 | ||||||
Fixed Income Securities - U.S. Government and Government Agencies(c) | 150 | - | ||||||
Fixed Income Securities - Non-U.S. Government(b)(c) | 20 | 36 | ||||||
Other Investments(b) | - | 10 | ||||||
Total fair value of plan assets(d) | $ | 920 | $ | 164 | ||||
(a) | Short-term investments in money market funds |
(b) | Securities held in common trusts |
(c) | Investments held by the Plan are directly held |
(d) | Excludes net payable of $13 million in the U.S. for purchases of assets included in the above that were settled after year end |
Year ended: | U.S. Pension Plans | International Pension Plans | |||||||||
2011 | $ | 54 | $ | 2 | |||||||
2012 | 41 | 2 | |||||||||
2013 | 48 | 2 | |||||||||
2014 | 46 | 2 | |||||||||
2015 | 47 | 2 | |||||||||
2016 - 2020 | 286 | 11 | |||||||||
|
|||
2010 | 2009 | 2008 | ||||||||||
Risk-free interest rate | 2.4 | % | 1.9 | % | 3.0 | % | ||||||
Expected term (years) | 6.0 | 5.9 | 6.0 | |||||||||
Expected volatility | 30.0 | % | 32.3 | % | 30.9 | % | ||||||
Expected dividend yield | 2.5 | % | 2.6 | % | 1.7 | % | ||||||
Shares | Weighted-Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value (in millions) | |||||||||||||
Outstanding at the beginning of the year | 41,665 | $ | 23.59 | |||||||||||||
Granted | 6,197 | 33.57 | ||||||||||||||
Exercised | (9,937 | ) | 16.46 | |||||||||||||
Forfeited or expired | (1,487 | ) | 31.49 | |||||||||||||
Outstanding at the end of the year | 36,438 | (a) | $ | 26.91 | 6.02 | $ | 829 | |||||||||
Exercisable at the end of the year | 20,504 | $ | 22.67 | 4.43 | $ | 553 | ||||||||||
(a) | Outstanding awards include 12,058 options and 24,380 SARs with average exercise prices of $18.52 and $31.06, respectively. |
2010 | 2009 | 2008 | ||||||
Options and SARs | $ | 40 | $ | 48 | $ | 51 | ||
Restricted Stock Units | 5 | 7 | 8 | |||||
Performance Share Units | 2 | 1 | - | |||||
Total Share-based Compensation Expense | 47 | 56 | 59 | |||||
Deferred Tax Benefit recognized | 13 | 17 | 18 | |||||
EID compensation expense not share-based | $ | 4 | $ | 4 | $ | 4 | ||
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Shares Repurchased (thousands) | Dollar Value of Shares Repurchased | ||||||||||||||||||
Authorization Date | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||
March 2010 | 2,161 | - | - | $ | 107 | $ | - | $ | - | ||||||||||
September 2009 | 7,598 | - | - | 283 | - | - | |||||||||||||
January 2008 | - | - | 23,943 | - | - | 802 | |||||||||||||
October 2007 | - | - | 22,875 | - | - | 813 | |||||||||||||
Total | 9,759 | - | 46,818 | $ | 390 | (a) | $ | - | $ | 1,615 | (b) | ||||||||
(a) | Amount includes the effect of $19 million in share repurchases (0.4 million shares) with trade dates prior to the 2010 fiscal year end but cash settlement dates subsequent to the 2010 fiscal year. |
(b) | Amount excludes the effect of $13 million in share repurchases (0.4 million shares) with trade dates prior to the 2007 fiscal year end but cash settlement dates subsequent to the 2007 fiscal year end. |
2010 | 2009 | |||||||||
Foreign currency translation adjustment | $ | 55 | $ | 47 | ||||||
Pension and post-retirement losses, net of tax | (269 | ) | (259 | ) | ||||||
Net unrealized losses on derivative instruments, net of tax | (13 | ) | (12 | ) | ||||||
Total accumulated other comprehensive loss | $ | (227 | ) | $ | (224 | ) | ||||
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2010 | 2009 | 2008 | |||||||||||
U.S. | $ | 345 | $ | 269 | $ | 430 | |||||||
Foreign | 1,249 | 1,127 | 861 | ||||||||||
$ | 1,594 | $ | 1,396 | $ | 1,291 | ||||||||
2010 | 2009 | 2008 | ||||||||||||||
Current: | Federal | $ | 155 | $ | (21 | ) | $ | 168 | ||||||||
Foreign | 356 | 251 | 151 | |||||||||||||
State | 15 | 11 | (1 | ) | ||||||||||||
526 | 241 | 318 | ||||||||||||||
Deferred: | Federal | (82) | 92 | (12 | ) | |||||||||||
Foreign | (29) | (30 | ) | 3 | ||||||||||||
State | 1 | 10 | 10 | |||||||||||||
(110) | 72 | 1 | ||||||||||||||
$ | 416 | $ | 313 | $ | 319 | |||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||
U.S. federal statutory rate | $ | 558 | 35.0 | % | $ | 489 | 35.0 | % | $ | 452 | 35.0 | % | ||||||||
State income tax, net of federal tax benefit | 12 | 0.7 | 14 | 1.0 | 5 | 0.6 | ||||||||||||||
Statutory rate differential attributable to foreign operations | (235) | (14.7) | (159 | ) | (11.4 | ) | (187 | ) | (14.5 | ) | ||||||||||
Adjustments to reserves and prior years | 55 | 3.5 | (9 | ) | (0.6 | ) | 44 | 3.5 | ||||||||||||
Change in valuation allowance | 22 | 1.4 | (9 | ) | (0.7 | ) | 12 | 0.6 | ||||||||||||
Other, net | 4 | 0.2 | (13 | ) | (0.9 | ) | (7 | ) | (0.5 | ) | ||||||||||
Effective income tax rate | $ | 416 | 26.1 | % | $ | 313 | 22.4 | % | $ | 319 | 24.7 | % | ||||||||
Valuation Allowances | |||||||||||||||
Beginning Balance | Current Year Operations | Changes in Judgment | CTA and Other Adjustments | Ending Balance | |||||||||||
U.S. state | $ | 32 | $ | (2) | $ | (3) | $ | - | $ | 27 | |||||
Foreign | 155 | 27 | - | (18) | 164 | ||||||||||
$ | 187 | $ | 25 | $ | (3) | $ | (18) | $ | 191 | ||||||
2010 | 2009 | |||||||
Net operating loss and tax credit carryforwards | $ | 220 | $ | 222 | ||||
Employee benefits | 158 | 148 | ||||||
Share-based compensation | 102 | 106 | ||||||
Self-insured casualty claims | 50 | 59 | ||||||
Lease related liabilities | 166 | 157 | ||||||
Various liabilities | 130 | 99 | ||||||
Deferred income and other | 82 | 59 | ||||||
Gross deferred tax assets | 908 | 850 | ||||||
Deferred tax asset valuation allowances | (191 | ) | (187 | ) | ||||
Net deferred tax assets | $ | 717 | $ | 663 | ||||
Intangible assets, including goodwill | $ | (243 | ) | $ | (240 | ) | ||
Property, plant and equipment | (104 | ) | (118 | ) | ||||
Other | (14 | ) | (46 | ) | ||||
Gross deferred tax liabilities | $ | (361 | ) | $ | (404 | ) | ||
Net deferred tax assets (liabilities) | $ | 356 | $ | 259 | ||||
Reported in Consolidated Balance Sheets as: | ||||||||
Deferred income taxes - current | $ | 61 | $ | 81 | ||||
Deferred income taxes - long-term | 366 | 251 | ||||||
Accounts payable and other current liabilities | (20 | ) | (7 | ) | ||||
Other liabilities and deferred credits | (51 | ) | (66 | ) | ||||
$ | 356 | $ | 259 | |||||
Year of Expiration | |||||||||||||||
2011 | 2012-2015 | 2016-2030 | Indefinitely | Total | |||||||||||
Foreign | $ | 4 | $ | 65 | $ | 142 | $ | 421 | $ | 632 | |||||
U.S. state | 12 | 88 | 1,590 | - | 1,690 | ||||||||||
$ | 16 | $ | 153 | $ | 1,732 | $ | 421 | $ | 2,322 | ||||||
2010 | 2009 | ||||||||
Beginning of Year | $ | 301 | $ | 296 | |||||
Additions on tax positions - current year | 45 | 48 | |||||||
Additions for tax positions - prior years | 35 | 59 | |||||||
Reductions for tax positions - prior years | (19 | ) | (68 | ) | |||||
Reductions for settlements | (41 | ) | (33 | ) | |||||
Reductions due to statute expiration | (10 | ) | (6 | ) | |||||
Foreign currency translation adjustment | (3 | ) | 5 | ||||||
End of Year | $ | 308 | $ | 301 | |||||
Jurisdiction | Open Tax Years | ||
U.S. Federal | 1999 - 2010 | ||
China | 2007 - 2010 | ||
United Kingdom | 2003 - 2010 | ||
Mexico | 2001 - 2010 | ||
Australia | 2006 - 2010 |
2010 | 2009 | ||||||||||||
Accrued interest and penalties | $ | 48 | $ | 41 | |||||||||
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Revenues | ||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||
China Division | $ | 4,135 | $ | 3,407 | $ | 2,840 | ||||||||||
YRI | 3,088 | 2,988 | 3,332 | |||||||||||||
U.S. | 4,120 | 4,473 | 5,132 | |||||||||||||
Unallocated Franchise and license fees and income(a)(b) | - | (32 | ) | - | ||||||||||||
$ | 11,343 | $ | 10,836 | $ | 11,304 | |||||||||||
Depreciation and Amortization | ||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||
China Division | $ | 225 | $ | 184 | $ | 136 | ||||||||||
YRI | 159 | 165 | 173 | |||||||||||||
U.S. | 201 | 216 | 231 | |||||||||||||
Corporate(d) | 4 | 15 | 16 | |||||||||||||
$ | 589 | $ | 580 | $ | 556 | |||||||||||
Capital Spending | ||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||
China Division | $ | 272 | $ | 271 | $ | 300 | ||||||||||
YRI | 259 | 251 | 280 | |||||||||||||
U.S. | 241 | 270 | 349 | |||||||||||||
Corporate | 24 | 5 | 6 | |||||||||||||
$ | 796 | $ | 797 | $ | 935 | |||||||||||
Identifiable Assets | ||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||
China Division(h) | $ | 2,289 | $ | 1,632 | $ | 1,251 | ||||||||||
YRI | 2,649 | 2,448 | 2,017 | |||||||||||||
U.S. | 2,398 | 2,575 | 2,739 | |||||||||||||
Corporate(i) | 980 | 493 | 520 | |||||||||||||
$ | 8,316 | $ | 7,148 | $ | 6,527 | |||||||||||
Long-Lived Assets(j) | ||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||
China Division | $ | 1,269 | $ | 1,172 | $ | 905 | ||||||||||
YRI | 1,548 | 1,524 | 1,269 | |||||||||||||
U.S. | 2,095 | 2,260 | 2,413 | |||||||||||||
Corporate | 52 | 45 | 63 | |||||||||||||
$ | 4,964 | $ | 5,001 | $ | 4,650 | |||||||||||
(a) | Amount consists of reimbursements to KFC franchisees for installation costs of ovens for the national launch of Kentucky Grilled Chicken. See Note 4. |
(b) | Amounts have not been allocated to the U.S., YRI or China Division segments for performance reporting purposes. |
(c) | Includes equity income from investments in of unconsolidated affiliates of $42 million, $36 million and $40 million in 2010, 2009 and 2008, respectively, for the China Division. |
(d) | 2010 includes a $9 million depreciation reduction arising from the impairment of KFC restaurants we offered to sell in 2010. See Note 4. |
(e) | 2010, 2009 and 2008 include approximately $9 million, $16 million and $49 million, respectively, of charges relating to U.S. general and administrative productivity initiatives and realignment of resources. Additionally, 2008 includes $7 million of charges relating to investments in our U.S. Brands. See Note 4. |
(f) | 2009 includes a $26 million charge to write-off goodwill associated with our LJS and A&W businesses in the U.S. See Note 9. |
(g) | 2009 includes a $68 million gain related to the acquisition of additional interest in and consolidation of a former unconsolidated affiliate in China and 2008 includes a $100 million gain recognized on the sale of our interest in our unconsolidated affiliate in Japan. See Note 4. |
(h) | China Division includes investment in 4 unconsolidated affiliates totaling $154 million, $144 million and $65 million, for 2010, 2009 and 2008, respectively. The 2009 increase was driven by our acquisition of interest in Little Sheep, net of our acquisition of additional interest in and consolidation of our unconsolidated affiliate in Shanghai, China. See Note 4. |
(i) | Primarily includes cash, deferred tax assets and property, plant and equipment, net, related to our office facilities. |
(j) | Includes property, plant and equipment, net, goodwill, and intangible assets, net. |
Operating Profit; Interest Expense, Net; and Income Before Income Taxes | ||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||
China Division(c) | $ | 755 | $ | 596 | $ | 471 | ||||||||||
YRI | 589 | 497 | 531 | |||||||||||||
U.S. | 668 | 647 | 641 | |||||||||||||
Unallocated Franchise and license fees and income(a)(b) | - | (32 | ) | - | ||||||||||||
Unallocated Occupancy and other(b)(d) | 9 | - | - | |||||||||||||
Unallocated and corporate expenses(b)(e) | (194 | ) | (189 | ) | (248 | ) | ||||||||||
Unallocated Impairment expense(b)(f) | - | (26 | ) | - | ||||||||||||
Unallocated Other income (expense)(b)(g) | 5 | 71 | 117 | |||||||||||||
Unallocated Refranchising gain (loss)(b) | (63 | ) | 26 | 5 | ||||||||||||
Operating Profit | 1,769 | 1,590 | 1,517 | |||||||||||||
Interest expense, net | (175 | ) | (194 | ) | (226 | ) | ||||||||||
Income Before Income Taxes | $ | 1,594 | $ | 1,396 | $ | 1,291 | ||||||||||
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|||
Beginning Balance | Expense | Payments | Ending Balance | ||||||||||||
2010 Activity | $ | 173 | 46 | (69 | ) | $ | 150 | ||||||||
2009 Activity | $ | 196 | 44 | (67 | ) | $ | 173 | ||||||||
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2010 | |||||||||||||||
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | |||||||||||
Revenues: | |||||||||||||||
Company sales | $ | 1,996 | $ | 2,220 | $ | 2,496 | $ | 3,071 | $ | 9,783 | |||||
Franchise and license fees and income | 349 | 354 | 366 | 491 | 1,560 | ||||||||||
Total revenues | 2,345 | 2,574 | 2,862 | 3,562 | 11,343 | ||||||||||
Restaurant profit | 340 | 366 | 479 | 478 | 1,663 | ||||||||||
Operating Profit(a) | 364 | 421 | 544 | 440 | 1,769 | ||||||||||
Net Income - YUM! Brands, Inc. | 241 | 286 | 357 | 274 | 1,158 | ||||||||||
Basic earnings per common share | 0.51 | 0.61 | 0.76 | 0.58 | 2.44 | ||||||||||
Diluted earnings per common share | 0.50 | 0.59 | 0.74 | 0.56 | 2.38 | ||||||||||
Dividends declared per common share | 0.21 | 0.21 | - | 0.50 | 0.92 | ||||||||||
2009 | |||||||||||||||
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | |||||||||||
Revenues: | |||||||||||||||
Company sales | $ | 1,918 | $ | 2,152 | $ | 2,432 | $ | 2,911 | $ | 9,413 | |||||
Franchise and license fees and income | 299 | 324 | 346 | 454 | 1,423 | ||||||||||
Total revenues | 2,217 | 2,476 | 2,778 | 3,365 | 10,836 | ||||||||||
Restaurant profit | 308 | 324 | 425 | 422 | 1,479 | ||||||||||
Operating Profit(b) | 351 | 394 | 470 | 375 | 1,590 | ||||||||||
Net Income - YUM! Brands, Inc. | 218 | 303 | 334 | 216 | 1,071 | ||||||||||
Basic earnings per common share | 0.47 | 0.65 | 0.71 | 0.46 | 2.28 | ||||||||||
Diluted earnings per common share | 0.46 | 0.63 | 0.69 | 0.45 | 2.22 | ||||||||||
Dividends declared per common share | - | 0.38 | - | 0.42 | 0.80 | ||||||||||
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